SmartVestor Insider - December 2018

'Tis the Season to Give - AND Reduce Taxes!


A great way to make a financial gift to your church or another charitable organization is through a Qualified Charitable Distribution from your Traditional IRA account. IF you are over the age of 70 ½ and subject to required minimum distributions, you can request that the IRA custodian issue a check for part or all of your required minimum distribution made payable to your charity of choice. The amount that goes to charity is not included in your ordinary income. For example: Let’s say your required minimum distribution for your traditional IRA account is $10,000, if you instruct your advisor or mutual fund company to send your church $3,000 directly, and send the remaining $7,000 to you, the $3,000 you gave to the church is not included in your income for the year. The taxable distribution to you would be $7,000. This can only be accomplished from an IRA account. If you have a 401(k) or other employer retirement plan, you can roll a portion of the 401(k) into an IRA, then take the distribution as outlined above.

Dividend, Interest, and Capital Gain Distributions


Inside a mutual fund, the underlying investments, such as company stock, company bonds and/or government bonds, pay dividends and interest into the mutual fund. The mutual fund is required to “pass through” those dividends and interest payments to the mutual fund investors. Mutual funds make transactions in the fund, such as the purchase and sale of the underlying investments in the fund, which can cause capital gains (if the investments appreciated in value) or capital losses (if the investments depreciated in value). Capital gains also get distributed along with the dividends and interest by the mutual fund.

Most mutual funds pass these dividends, interest payments, and capital gains (called distributions) at the end of the year. They declare the distribution amount and provide a “record date.” Anybody that is a shareholder in the fund as of the “record date” receives the distributions. The distributions can be paid in cash or can be automatically reinvested by purchasing additional shares of the mutual fund. If the mutual funds are not in a tax advantaged account, such as an IRA, Roth IRA or retirement account, the investor will receive an IRS form 1099 that will show the taxable portion of the dividends, interest, and capital gains.

When investing in a non-IRA type of account, it is important to select mutual fund investments that consider the tax consequences for the investors, because taxes drag down the overall returns, and leaves less money in the investor’s pocket.

Do you have questions for an investment pro? Contact us today by calling (509) 735-0484 or emailing